How do I Calculate Mortgage Amortization?

Over time, the portion of your monthly mortgage payment allocated to principal and interest varies based on your loan amortization schedule. Understanding this schedule can help you make informed decisions about how to pay off your loan effectively, as well as the time and cost involved.

What is mortgage amortization?

Mortgage amortization is the process through which a borrower makes installment payments to repay the loan balance over a set period. These payments are divided between the principal (the amount borrowed) and interest (the lender’s charge for borrowing the funds).

The longer the loan amortization period, the lower your monthly payment, as the payments are spread over a longer time. However, a longer loan term also means more money spent on interest. Additionally, because interest payments are front-loaded with a longer mortgage, it takes more time to significantly reduce the principal and build equity in your home. This is an important factor to consider when comparing loan options.

Amortization with fixed-rate mortgages

With a fixed-rate mortgage, the monthly payments remain consistent throughout the loan’s term. However, each time you make a payment, the portion applied to the principal varies from the portion applied to interest, even though the total payment amount remains the same.

“As your loan matures, you can expect a higher percentage of your payment to go toward the principal, with a lower percentage going toward the interest,” says Nishank Khanna, chief marketing officer at Clarify Capital in New York City.

Amortization with adjustable-rate mortgages

On the other hand, an adjustable-rate mortgage (ARM) features a fixed interest rate for an initial period, typically between three and 10 years. After this period, your interest rate and monthly mortgage payment will adjust every six or 12 months, depending on the type of ARM you have.

Similar to fixed-rate mortgages, you’ll initially pay a larger portion of your payment toward interest. Over time, this will shift, with more of your payment going toward the loan principal.

What is a mortgage amortization schedule?

A mortgage amortization schedule, or table, outlines all the payment installments and their respective dates. These schedules are intricate and best generated using an amortization calculator.

“A calculator is essential due to the numerous variables involved, such as the number of compounding periods, interest rate, loan amount, and final balance,” explains Trevor Calton, president of Evergreen Capital Advisors in Portland, Oregon.

Where can you find your mortgage amortization schedule?

You can usually find your mortgage amortization schedule by logging into your lender’s portal or website and accessing your loan information online. In some cases, however, you may need to contact your lender to request it.

“Borrowers typically need to call their bank or lender to request their amortization schedule for an existing mortgage loan,” says David Druey, Florida regional president of Miami-based Centennial Bank.

How do you calculate mortgage amortization?

Using a loan amortization calculator is the best way to understand how your payments break down over the life of your mortgage.

To use the calculator, you’ll need to input a few details about your mortgage, including:

• Principal loan amount
• Loan term (such as 30 years)
• Loan start date
• Interest rate

You’ll also need to enter information about any extra payments you make and their frequency. The calculator will then provide an in-depth schedule for each month of your loan, detailing how much principal and interest you’ll pay with each payment and how much principal and interest will have been paid by a specific date.

Mortgage amortization schedule example

Let’s assume you took out a 30-year mortgage for $300,000 at a fixed interest rate of 6.5 percent. With these terms, your monthly mortgage payment (covering both principal and interest) would be just over $1,896, and the total interest paid over the 30-year term would amount to $382,633.

Here’s a snapshot of what your loan amortization schedule might look like in the first year of the loan term (assuming you obtained the loan in 2023):

Here’s what your amortization schedule would look like in the final year:

As illustrated in this amortization table, the portion of your payment allocated to the principal increases over time, while the amount applied to interest decreases as the mortgage approaches maturity.

This pattern is typical for a 30-year fixed-rate mortgage. However, amortization schedules and the distribution of payments between interest and principal can vary depending on factors such as the loan amount, down payment, loan term, and other conditions.

Why you should understand your mortgage amortization schedule

When deciding on a loan term and amortization schedule, it’s crucial to consider how long you plan to stay in the home.

“For example, if you buy a starter home with the intention of upgrading to a larger house in five years, you may expect to make a profit when you sell. However, you might owe more than the home’s value due to your chosen amortization schedule and slight depreciation in the home’s value,” says Khanna. “In this scenario, choosing a 30-year mortgage over a 15-year loan means most of your payments go toward interest rather than the principal balance.”

Understanding your amortization schedule can also help you determine if you need to change your repayment strategy, especially if you’re struggling to make payments.

“For those facing challenges paying their mortgage each month, options such as refinancing or negotiating with your lender to pay only a portion of the debt owed each month can be discussed,” says Druey.

You might also consider prepaying your mortgage, such as making biweekly payments instead of monthly payments. Knowing how your loan amortizes can help inform your strategy in this regard as well.